Seattle's Forecast: Still Hot But Risks Exist
The Seattle commercial real estate market continues at its red-hot pace, according to several panelists who spoke at Bisnow’s Seattle Forecast event.
There is no question commercial real estate is booming, thanks to an eclectic mix of industries, coupled with multiple international nonstop airline routes and excellent living conditions.
Urban Renaissance Group CEO Pat Callahan, keynote speaker at the event, said cloud computing has changed everything for Seattle.
“Amazon made Seattle the cloud-computing center of the universe,” he says.
If this trend continues, the area will be in good shape, but he cautioned to put it all in context.
“Ten years ago, Washington Mutual was the largest downtown tenant,” he said. “Five years ago, we were trying to figure out if Amazon was a credit tenant.”
Risks to the current economic prosperity are plentiful, he said.
The greatest risk, according to Callahan, is the state of political polarization or extreme populism.
“Extreme populism thrives on an enemy,” he said.
That means that when something goes wrong, one side blames the other rather than both sides acknowledging the problem and working together to fix it, he said.
Callahan fears that a trade war or foreign policy could torpedo the current economy, driving instead toward recession.
“We haven’t had an ambassador in Korea for a year,” he said. “I’m really worried about that impact.”
How business leaders account for that risk is up to them.
“It’s hard to plan for a black swan event,” he said.
The event’s foreign investment and development panel also weighed in on foreign policy concerns.
“I’m worried that President [Donald] Trump’s foreign policy with China is not defined very well,” Kidder Mathews First Vice President Holly Yang said.
Recently, Chinese investors have gone on shopping sprees with megamillion-dollar deals that have helped Seattle boom, she said.
“Seattle is very attractive to all the foreign investors, but China is leading the pack,” Yang said.
Chinese investors are responsible for $2.2B worth of investment, with 90% of that happening in the last three years.
Despite concerns over national foreign policy, Yang sees Seattle as well-situated to become the next San Francisco.
“If we play our cards right, Seattle will be the next global city,” she said. “But we have to play our cards right.”
Direct international airline flights are definitely working in the city’s favor, Yang said.
“A 10-hour flight to Seattle is not a big deal,” she said. “You land and start working.”
American Life Inc. CEO Henry Liebman said the under-construction $766M international terminal at Sea-Tac will bring in carriers with nonstop flights from around the world.
“The number of people coming here will explode,” he said. “We used to be in the middle of nowhere. Now we are centrally located.”
In addition, companies like Starbucks are acting as foreign ambassadors for Seattle, Yang said.
The diversity of economic clusters is also contributing to Seattle’s economic health, UW Runstad Center for Real Estate Studies Director Simon Stevenson said.
“In the '60s and '70s, we were all about Boeing, then came Microsoft,” he said. “Now we have technology, maritime and aerospace. We need to hang on to these clusters.”
So, how long will the good times last?
There are already warning signs of a potential slowdown in the Seattle commercial real estate market.
“Properties are staying on the market longer in both the commercial and industrial market,” Liebman said.
“All over the world, liquidity is starting to dry out.”